kankan326
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So the money directly needed here is: US $10b+US $15b+US $13b= US $38b ~ US $40b.First, we used the opportunity to sell foreign reserves for Hong Kong dollars, in anticipation of the draw down of fiscal reserves deposited with the Exchange Fund, as the public finances moved into a cyclical as well as a seasonal deficit. This relieved some of the pressure on the exchange rate and therefore obviated the need for a repeat of the very sharp interest rate hike of 1997. The amount of foreign reserves utilised in this manner was about US$10 billion. Secondly, we sold large sums of foreign reserves for Hong Kong dollars for the purchase of Hong Kong stocks equivalent to US$15 billion. Thirdly, we made the monetary base much bigger in order to reduce the sensitivity of interest rates to inflows and outflows of funds. This involved committing another US$13 billion as additional backing.
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It should also be noted that we were able to do so without causing a breakdown of confidence in monetary and financial management in Hong Kong on the part of the international financial community, including financial analysts and rating agencies. To a large extent, this was because we had significantly more foreign reserves in the Exchange Fund than the sums mobilised, and the Fund had no significant liabilities other than the fiscal reserves deposited there.
https://www.legco.gov.hk/yr00-01/english/panels/fa/papers/a1022e02.pdf
"It should also be noted that we were able to do so without causing a breakdown of confidence in monetary and financial management in Hong Kong on the part of the international financial community, including financial analysts and rating agencies. To a large extent, this was because we had significantly more foreign reserves in the Exchange Fund than the sums mobilised, and the Fund had no significant liabilities other than the fiscal reserves deposited there."---------Which means at least US $40b immboblized reserves were needed to maintain market confidence.
So to win the war, total reserves HK needed is >US $80b. And total reserves HK government had by then is >US $90b. Can we call this is a close win?
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